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Capital Account Liberalization, Capital Flow Patterns, and Policy Responses in the EU's New Member States

  • Zsófia Ãrvai
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    This paper discusses the experience of the EU's eight new member countries (EU8) between 1995 and 2003 when the bulk of capital account liberalization took place, focusing on interest-rate-sensitive portfolio flows and financial flows. It takes stock of the lessons from capital flow patterns to draw policy conclusions. There were two distinct groups in terms of the speed of capital account liberalization: rapid liberalizers and cautious liberalizers. The speed of disinflation and the level of public debt were major determinants of the size of interest-rate-sensitive portfolio inflows. Monetary and exchange rate policies were the main instruments used to react to large interest-sensitive inflows, whereas fiscal tightening was seldom used as a direct reaction to inflows.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/213.

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    Length: 42
    Date of creation: 01 Nov 2005
    Date of revision:
    Handle: RePEc:imf:imfwpa:05/213
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    1. Cottarelli, Carlo & Dell'Ariccia, Giovanni & Vladkova-Hollar, Ivanna, 2005. "Early birds, late risers, and sleeping beauties: Bank credit growth to the private sector in Central and Eastern Europe and in the Balkans," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 83-104, January.
    2. Niamh Sheridan & Alfred Schipke & Susan Mary George & Christian H. Beddies, 2004. "Capital Markets and Financial Intermediation in The Baltics," IMF Occasional Papers 228, International Monetary Fund.
    3. Sebastian Edwards, 2001. "Capital Mobility and Economic Performance: Are Emerging Economies Different?," NBER Working Papers 8076, National Bureau of Economic Research, Inc.
    4. Leslie Lipschitz & Alex Mourmouras & Timothy D. Lane, 2002. "Capital Flows to Transition Economies: Master or Servant?," IMF Working Papers 02/11, International Monetary Fund.
    5. Lusinyan, Lusine & Buch, Claudia M., 2002. "Short-Term Capital, Economic Transformation, and EU Accession," Discussion Paper Series 1: Economic Studies 2002,02, Deutsche Bundesbank, Research Centre.
    6. Claudia M. Buch, 1999. "Capital Mobility and EU Enlargement," Kiel Working Papers 908, Kiel Institute for the World Economy.
    7. M. Buch, Claudia & Hanschel, Elke, 2000. "The Effectiveness of Capital Controls: The Case of Slovenia," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 15, pages 602-628.
    8. Carlos Arteta & Barry Eichengreen & Charles Wyplosz, 2001. "When Does Capital Account Liberalization Help More than It Hurts?," NBER Working Papers 8414, National Bureau of Economic Research, Inc.
    9. Pekka Sutela, 2002. "Managing capital flows in Estonia and Latvia," Macroeconomics 0209008, EconWPA.
    10. Nancy L. Wagner & Dora M. Iakova, 2001. "Financial Sector Evolution in the Central European Economies: Challenges in Supporting Macroeconomic Stability and Sustainable Growth," IMF Working Papers 01/141, International Monetary Fund.
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